Is "We Buy Houses" a Ripoff? What Sellers Should Know

Cash-buying companies have become a popular alternative to the traditional home sales process. They typically offer quick, hassle-free closing and will buy houses in any condition, even those facing foreclosure.

However, many homeowners who’ve dealt with these buyers caution others against lowball offers and aggressive tactics. Here, we talk about these “we buy houses” companies, how they work, how much they offer, and how to protect yourself if you decide to sell your home quickly for cash.

How “We Buy Houses” companies work

Most of the companies that buy homes for cash have a similar business model. Typically, they buy homes at a price significantly lower than market value, repair them, and then sell them for a profit. You might also encounter the related term “house flipping.”

Of course, cash buyers need to be able to make money on these transactions. That’s why they usually use the “70% rule” to evaluate the viability of the investment as a rule of thumb.

The 70% rule states that an investor should not pay more than 70% of the property’s after-repair value (ARV) to a home seller, minus the cost of repairs. For example, if a house needs $50,000 in repairs, and the cash buyer thinks it will be worth $300,000 after those repairs, then that buyer may offer $160,000 to a seller (70% of $300K = $210K, minus $50K repairs).

While there are many legitimate cash buyers on the market, some homeowners might encounter wholesalers who only try to resell the contract to another investor. These deals have a much higher chance of falling through.

Are “We Buy Houses” companies a ripoff?

If you decide to work with a company that offers to buy your home for cash, don’t expect to receive the full market value for your house. The convenience of a quick closing with no need to market or repair the property comes with a big trade-off in the form of much lower profit.

When it makes sense to sell for cash

Homeowners may find themselves in situations when the benefits of selling for cash could outweigh the negatives. For example:

• Sellers facing foreclosure or financial hardship
• Owners of properties in poor condition
• Homeowners who need a fast, guaranteed closing
• Landlords with tenants
• Sellers out of state
• Sellers with a recently inherited property

When a cash offer is a bad idea

In many cases, selling a home to a company that buys houses for cash is not recommended as a first choice. For example:

• Your home is in good condition and marketable
• Your property is located in a hot real estate market, where buyers could purchase it quickly and for top dollar
• You’re not in a rush and can invest time and effort in getting the property ready for the market and listing on the MLS
• You could make more working with a low-commission agent or an iBuyer 

Are you looking to sell your home quickly for cash, but don’t want to end up with a wholesaler who may not deliver on their promise? Check out Clever Offers! You can compare multiple offers from vetted cash buyers and choose the best option.

How much less do cash buyers pay?

We talked to multiple investors and real estate experts, and they all seem to be unanimous: You can only expect to get 60-80% of your property’s market value if you sell to a “we buy houses for cash” type of company.

This price cannot be much higher as these companies expect to make a profit on your home and need to budget for marketing, overhead, and so on. So if you're selling a house valued at $300,000, you could get $180,000–240,000 (and an investor might also add the cost of repairs on top, which will make the offer even lower).

The monetary value of selling a home to a cash buyer company vs. traditionally

Let’s compare this above amount to your profit should you decide to put your $300,000-valued home on the market and pursue a traditional sale. According to Clever Real Estate, the average cost of selling a home is 9% of the sales price (that includes agent’s costs, closing costs, and other fees).

On top of that, repair costs can vary anywhere from a couple thousand to tens of thousands, depending on the state of your home. You could also decide to work with a realtor but sell the house as-is if it feels like too much trouble to update it.

That leaves a seller with around $265,000 of net profit. What’s more, an experienced broker can help you market the home properly and create the right selling strategy, which could result in a sale for higher than the market price. A 2024 study shows that sellers using a real estate agent made $79,000 more on average than those selling off-market.

Biggest “We Buy Houses” scams and issues to watch out for

1. The “wholesale” bait-and-switch

This is one of the most common issues sellers may encounter when trying to find a cash buyer, and it’s one of the reasons why cash-buying companies have a bad rap.

While there are legitimate wholesale businesses, some companies intend to resell the contract to another buyer. “If a seller goes under contract with a wholesaler, they may not be aware of their intention to flip the contract to another investor for a profit. I would advise sellers to pay attention to the assignability of the contract,” says Robert Washington, a broker with Savvy Buyers Realty.

Red flag: Buyer has no proof of funds and asks for a long closing period.

2. Lowball offer followed by a last-minute price cut

This problem is commonly reported by many homeowners who were trying to sell their property to a “we buy ugly houses” type of company. At first, a buyer offers a fair price. However, nearer to closing, they add an exorbitant cost of repairs or claim “unexpected issues” with the property, and then decrease the offer price significantly.

Of course, there are plenty of instances when a proper inspection can indeed uncover some problems. But be wary of cash buyers who start with a too-good-to-be-true initial offer, as they might lower it later considerably.

Red flag: Buyer refuses to visit the home before making an offer.

3. Upfront fees or “deposit scams”

Legitimate buyers never ask you for any money upfront. If a cash buyer asks you to pay processing or appraisal fees, it’s likely to be a scam. Never make initial payments without doing some background research on the company and signing the contract.

Red flag: A cash buyer asks for money up front.

4. Fake foreclosure relief

Some homeowners who face foreclosure encounter a scam in which a company offers to pay the outstanding mortgage balance or negotiate with your lender in exchange for a fee. 

Usually, these companies can charge an amount that adds up to a few months of payments, promising services they will never deliver. Even worse, they can offer you to sign paperwork with the new loan terms, which would transfer the deed to the scammers.

Red flag: Buyer pressures you to sign paperwork quickly and won’t let you consult a lawyer.

5. “Equity skimming” scams

Similarly, some companies could offer to buy a property from you and pay off your mortgage with a promise that you’ll be able to rent out your home in the meantime and repurchase it later. Typically, this scheme can lead to a homeowner losing their property or being evicted.

Red flag: Any deal involving a “buyback” or long-term rental agreement.

Red flags of a shady cash buyer

How to tell if a cash buyer is legit

Many companies of this type are absolutely legit (although you might lose some profit on a sale working with them). However, this industry is prone to scams, so sellers need to be extra careful when working with “we buy houses” companies or buyers. Here are some steps to take to help ensure your transaction goes smoothly and safely:

Compare multiple offers. Shop around with a few companies, and don’t accept the first offer. Not only will you better assess the true value you can get for your home, but you can also gain some leverage for negotiating.

Request proof of funds. Ask to see a recent statement or an official letter from their bank to verify the buyer has money to pay, should you decide to sell to them. Likewise, consider declining to work with them if they won’t or can’t show you this information.

Look at the reviews. It’s important to understand what people have said about the company you may choose. “The local branch of the Better Business Bureau and online consumer websites are excellent places to begin the vetting,” states Jerry O'Reilly from Cash Home Buyers Crew.

Review past transactions. You may want to avoid working with a cash buyer without a long history — some companies with bad reviews have been known to change their DBA ("doing business as") name to reset their reputation. Ideally, the company you choose to go with will have been in business for at least a few years, with several transactions successfully completed.

Hire an attorney. Take any contracts or other to-be-signed documents to a real estate attorney to review before adding your signature. As trained professionals with your interests in mind, they’ll be able to spot any mistakes and help ensure you’re not getting scammed or shortchanged. 

Best alternatives to “We Buy Houses” companies

If you don’t want to lose much on the sale, look into other options. These are some common alternatives to selling your home to a cash investor.

1. Use an offers marketplace

Some platforms on the market (such as Clever Offers) let you compare multiple cash buyers and choose the one that works for you. Many of these marketplaces only work with vetted cash buyers who can submit proof of funds and provide you with an independent home valuation.

What’s more, some of these marketplaces can put your home on the open market to test the waters, see if there’s interest from buyers, and assess how much you can get for the property.

2. Sell as-is with a discount agent

If you want to save money on working with a realtor but don’t mind spending time and effort marketing your home properly, consider working with a discount broker. Many companies offer homeowners the opportunity to work with professional agents for as little as 1.5%—a big savings on agent fees.

“We recommend that sellers list their property publicly on the MLS in order to get the highest price regardless of the home’s condition. This ensures that a home will get the most exposure as possible,” states Washington. 

Putting your house on the open market can lead to multiple offers, which increases your chances to sell for a significantly higher price. Moreover, if you don’t want to deal with renovations and your home is in good condition, an agent can help you sell the place as-is while still getting the most out of the deal.

3. Consider an iBuyer (if your home qualifies)

iBuyers have a somewhat similar approach to the “we buy houses for cash” companies. They can close on a property in as little as one or two weeks and buy homes as-is.

These companies (such as Opendoor or Offerpad) typically pay more than cash investors and wholesalers, but they also have stricter requirements for homes they can buy. For example, many of them do not deal with foreclosed homes or houses with tenants.

Bottom line: Are "We Buy Houses" companies a ripoff?

Many companies with this business model are absolutely legit. However, sellers should know from the start that the price these buyers offer will be much lower than the home’s market value.

What’s more, this industry attracts many scammers, so homeowners should be extra careful when dealing with a cash buyer. Remember to do your due diligence, compare a few offers, and know the real value of your home. Additionally, turn to professional real estate agents or lawyers if you need any help navigating the process.

Are you ready to sell your home as-is, quickly, and for the best price? Check out Clever Offers to get multiple competing cash offers through a reputable offers marketplace.

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